Shanghai stocks plunge 8.48 percent as investor jitters return

SHANGHAI: Shanghai stocks plummeted 8.48 percent on Monday, their biggest fall for more than eight years and defying government efforts to prop up the market as investors worry such support may not last and prospects for the broader economy dim.
Officials have unveiled a slew of measures, including a police crackdown on short-selling and a ban on big shareholders selling stock for six months, to avert a slump which began in mid-June.
The moves had been credited with helping to stem the bleeding, stabilise trading and put prices back on an upward trajectory but trader sentiment remains wary.
The selling began on Friday when Shanghai stocks sank 1.29 percent, ending a six-day rally, after a closely watched private survey on China´s manufacturing sector came in at its weakest level in more than a year.
Some small investors saw the writing on the wall, and selling shifted to a rush on Monday as the herd mentality took hold.
"The market already showed weakness on Friday, so when I saw the weak trading this morning, I sold 95 percent of my holdings," Zhou Weiwei, who quit his job as an online merchant to trade stocks full-time, told AFP.
"I´ll wait for a while until I enter the market again."
The Shanghai Composite Index closed down 345.35 points to 3,725.56 on turnover of 721.3 billion yuan ($117.9 billion). The drop was the biggest since February 2007, Bloomberg News reported.
The Shenzhen Composite Index, which tracks stocks on China´s second exchange, slid 7.00 percent, or 162.62 points, to 2,160.09 on turnover of 667.7 billion yuan.
"Investors are not confident that the bull market will return any time soon," Jimmy Zuo, a trader at Guosen Securities, told Bloomberg.
"People want to pocket profits after the benchmark index rose past the 4,000 mark."
The falls came as economic data caused sentiment to turn, despite authorities´ efforts to support prices.
On Friday, the preliminary reading of Caixin´s Purchasing Managers´ Index (PMI) -- an independent survey of manufacturing activity -- came in at 48.2 for July, the weakest reading since 48.1 in April 2014.
On Monday, the government said that profits of major industrial firms slipped 0.3 percent year-on-year in June to 588.57 billion yuan.
Securities firms lost ground in Shanghai. Industrial Securities plunged by its 10 percent daily limit to 10.38 yuan and Dongxing Securities also slumped 10 percent to 21.92 yuan.
Toll road-related shares also fell. In Shanghai, Hubei Chutian Expressway dropped by its 10 percent daily limit to 6.26 yuan and Shandong Hi-speed lost 10 percent to 7.49 yuan.
Despite official denials, investors are also worried over whether the government will exit the market by removing the support funds which have propped up prices.
"The rise during the past two to three weeks was too big, so the market needs to correct itself," Zhang Qi, an analyst from Haitong Securities, told AFP.
"And there is also uncertainty about how the government support measures will exit the market," he said. Nonetheless he expects the Shanghai index to continue to move around the 4,000-point level.
China´s securities regulator last week denied studying an exit plan for market-stabilisation funds.
The state-backed China Securities Finance Corp., tasked with restoring market stability, also denied reducing its holdings in listed companies, state media reported on Wednesday.
But despite Monday´s dramatic decline, economists saw little reason for worry.
"Today´s market movement is not surprising," ANZ´s Liu Li-Gang and Raymond Yeung wrote in a report, saying further volatility is likely as regulators continue to implement control measures.
"However, we do not regard the price movement in (the) equity market a financial crisis," they said, adding they expect the central People´s Bank of China to carry out another interest rate cut -- after doing so four times already since November -- as well as further loosening bank reserve requirements to support the broader economy.